Investors who lose money in the UK through mismanagement, misselling, misrepresentation and the like, can claim compensation through the Financial Ombudsman Service, commonly known as the FOS. They can order the firm or advisor to pay up to £100,000. This sounds great, but there often appears to be a large gap between the theory (of how the FOS should work) and the reality. Let’s take a look at both. The theory is essentially what the HM Treasury claims, and they are evidently responsible for the FOS. The “reality” takes the form of comments from complainants, not just to the FOS, but about them.
The theory
The FOS is an independent non-governmental body, given statutory powers by the Financial Services and Markets Act 2000. The FOS does not deal with legal claims in the same way as a court, being a scheme under which complaints may be resolved quickly and with minimum formality by an independent person.
The FOS is required to evaluate a complaint by reference to what is, in their opinion, fair and reasonable in all the circumstances of the case. “The Ombudsman will take into account the relevant law, regulations, regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time." Accordingly, the Ombudsman is not required to follow the approach which a court might take regarding evidence, although he must "take into account the relevant law." The FOS is not supposed to represent any vested interests and is neither a consumer champion nor an industry trade-body.
There are many stages of 'appeal' inherent within the FOS process. Both consumers and firms are given opportunities to make further representations before the complaint reaches the final stage of an Ombudsman's decision.
Ombudsmen are not subject to appeal. People who wish to complain about the service can write to the service review manager. If they remain dissatisfied, they can contact the Independent Assessor. Additionally, once these procedures have been completed, there is also the option of applying to the courts for a judicial review of the FOS. Complainants who lose at the FOS can still take the firm to court.
This sums up the theory, which sounds pretty good. However, a look at some comments about the FOS – made by those have complained to the FOS – reveals that the theory is sometimes very different from the reality. In practice, there would appear to be a lot that is arguably unfair and unreasonable, and that there is no one to whom complainants can turn who will really intervene and ensure that final decisions are legally, financially and logically valid.
The reality of the FOS – the practice
The selection of comments below, from the internet and other sources, paints a picture that is diametrically opposed to the theory. Here are just a few examples of the many to be found. For any interested party, there is no shortage of such comments in the internet and various other media.
A certain Seela posting in 2003 on the website Trade2Win.com asked in a forum: “Anyone been screwed by the Financial Ombudsman? I have waited almost two years for their decision, and when it came, it was so incredibly biased and spiteful and hostile towards me, and treated the broker’s testimony as if it was absolutely sacred, that I was totally stunned.”
Some comments from late 2009, again from the Consumer Action Group, are even more damning. Cagger complains that the FOS handling of a debt dispute was "plain silly, utterly biased in favour of the lender and outrageous." He further laments that "they (the FOS) have taken the side of banks ... drawing conclusions "without examining all of the relevant facts."
Then there is this comment from a certain David: “Dear FOS – you are totally corrupt. In my experience (two complaints to the FOS), they are an utter waste of time. Two points to remember. 1) The FOS is funded by the finance industry. 2) He who pays the piper calls the tune.”
Another anonymous message from the Consumer Action Group site is very much in the same vein as the above: “In the Army, they used to call it ‘dumb insolence,’ the refusal to answer proper questions or to answer questions properly. Who would have thought that our financial regulators, The FSA and the Financial Ombudsman Service (FOS) would have become masters of this art form?”
Not just investors seem unhappy about the FOS. In an article in Citywire (September 2010) entitled "FSA Proposes Raising FOS Compensation Limit to £150,000," an anonymous reader argues bitterly that "when authority turns a blind eye to the principles of rule of law and natural justice and has no one to check its powers, the sky is really the limit as to what it can impose as there is no fear of retribution, just fear."
Barrister and QC Anthony Speight commented in 2007 that “an unappealable, compulsory, summary jurisdiction against small traders making awards as great as £100,000 is, in my view, both wrong in principle and produces injustice in practice.”
Indeed, the only form of appeal is a judicial review, but this is so expensive and stressful, that it can only really be used by large firms. Not surprisingly, therefore, those who complain bitterly about the FOS are often private investors with large firms (on the buying side), and small financial advisors (on the selling side).
What does all this imply and what can be done?
The theory underlying the Financial Ombudsman Service is impressive. However, in practice, as with many or even most UK ombudsman services, there is enormous dissatisfaction. And it is always the same allegations of bias of various kinds and issues being treated unfairly or ignored altogether. The FOS has enormous leeway to do more or less as it pleases, and clearly, complainants allege that this leads to the organisation being a law unto itself. There is evidently no one out there really controlling what is done and how. And for those who lose out at the FOS, the cost, complexity and stress of suing the firm or broker are generally prohibitive.
Given that the comments presented above are merely the tip of the iceberg, the authorities may need to investigate just how well and above all, how fairly and reasonably, the FOS is really doing its job. There can be no doubt that the safeguards built into the system are not consistently effective, and that the various reports and studies produced on the organisation have not confronted the realities contained in the above complaints.
Brian Bloch - Brian is based in Muenster, Germany and works as a managerial and financial journalist, as well as doing academic editing for non-native ...
